The Math Behind SaaS Startup Valuation

techcrunch.com – One of the most critical metrics for software companies — but also one of the most difficult to measure — is the lifetime value of their customers (LTV). The lifetime value dictates how a company should spend its marketing and sales dollars.

Unfortunately, many early stage startups struggle to measure LTV, because they haven’t been around very long and, consequently, haven’t seen a large number of customers through their lifespans with the product.

Most software companies calculate their LTV and a critical related metric, customer acquisition cost (CAC), using the following formulas: